Goldman Sachs, The World Cup, and Marketing Financial Failure

Earlier this year, the extremely well paid economists at Goldman Sachs decided to predict the winner of the World Cup.

After extensive statistical modelling using historical data (see the report), using the same techniques they use to predict economic activity, they concluded that Brazil was going to be the winner with a 48% level of certainty.

Obviously, this prediction was wrong. In fact, it was terrible. Germany stomped on Brazil.

For me, this prediction demonstrates how terrible social scientists are at predicting human behavior, even in a situation as structured and data rich as this.

Fortunately, this specific prediction didn’t do any lasting harm. It was just about the outcome of a game.

In the real world, we haven’t been as lucky. We’ve based our entire economic future on predictions from experts like these.

We use this logic in everything our economy does, from allocating investments to rewarding participants to responding to change.

For example, Chairman of the Federal Reserve makes predictions like this for a living, and she’s arguably the most powerful person in the world.

Yet, all of these predictions aren’t worth the paper/pixels they are printed on.

In reality, it’s marketing. Marketing that’s sucked us in and changed the way we think about economic activity.

Marketing that was used to convince us that:

Global markets aren’t casinos.

Debt is OK.

Financial speculation is actually investment.

As bad as this is, the worst sin for me is that this marketing has been used to sell us on the idea that all economic progress is financial in origin.